Re: OPEC & Oil Prices

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

A few weeks before the "oil price hikes of the 1970's", a U.S.
government-sponsored study on world oil prices crossed my desk at the IMF.

As best I can recall it, the study concluded (a) that then-current oil
prices, at some $2-3 per barrel, were excessive relative to production costs
of perhaps $1 per barrel in the major oil producing countries of the Middle
East, and (b) that something should be done to moderate such predatory
pricing practices.

Soon, oil prices shot up and President Nixon launched "Project
Independence", whereby the United States would escape OPEC's predatory
clutches.   In the event, nothing much came of it and the U.S. continues to
import a large share of its crude oil requirements.

All of which reaffirms (a) that world crude oil prices were - and remain -
technically indeterminate over a wide range, the upper limit of which is
defined by the supply cost of oil substitutes, and (b) that market POWER
determines how the "rental" element between the lower and upper limits is
split between producers and consumers.




----- Original Message -----
From: Canova, Timothy <CANOVA@xxxxxxxxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, March 11, 2000 7:48 AM
Subject: OPEC & Oil Prices


>
> The OPEC cartel is often blamed for the oil price hikes of the 1970's.
The
> late Lynn Turgeon argued that the devaluation of the dollar spurred OPEC
to
> tighten cartel discipline and raise prices, since OPEC's revenues were
> denominated in dollars.
>
> In Bastard Keynesianism (1996), at p. 26, Turgeon suggested that the rise
in
> speculative finance led to exchange rate fluctuations, changes in
commodity
> prices, and deterioration in the terms of trade of developing countries.
>
> Today the dollar is strong (for now) and oil prices have surged, giving a
> windfall to OPEC and other countries.  The U.S. probably produces less oil
> and is also more dependent on foreign oil than ever before, and I suspect
> that Russian oil production is way below what it was during the old Soviet
> Union, and that Iraqi production is also way down compared with a decade
> ago.
>
>